Strong Income Growth in October, Spending Not so Good
|Personal income and disposable personal income increased 0.6 percent in October while real disposable personal income was up 0.4 percent. Growth in spending was a bit more muted, up 0.3 percent.
Personal Income Stronger Than Expected
Personal income growth was stronger than expected in October, up 0.6 percent versus expectations of only 0.4 percent. Disposable personal income was also up 0.6 percent, while adjusted for price changes it was up 0.4 percent. The increase in personal income was motorized by a strong increase in wages and salaries in the service sector, up $32.0 billion, while wages and salaries in goods industries increased a relatively robust $9.7 billion, with $6.1 billion of that increase coming from the manufacturing sector.
Two other notable contributors to October’s improvement in personal income were personal income receipts on assets, up a very strong $27.8 billion during the month, and personal current transfer receipts, up $13.3 billion, which were driven by a $9.7 billion increase in social security benefits.
Spending Disappoints in October
After a strong revision for real third quarter personal consumption expenditures earlier this week, up 2.8 percent versus 2.1 percent, October’s personal spending result was disappointing, coming in at 0.3 percent in nominal terms and at only 0.1 percent in real terms, with both numbers missing expectations on the downside.
Spending in goods was actually stronger in October, up $52.2 billion, than in September, up $48.3 billion, driven by an increase of $37.6 billion in non-durable goods consumption, up from $18.8 billion in September. Meanwhile, durable goods consumption was more muted, up only $14.6 billion compared to an increase of $29.4 billion in September.
The real difference for personal consumption expenditures during the month of October was the surprise drop in services consumption, down $14.1 billion after an increase of $41.2 billion in September. Some of the blame for this weak services consumption print could be put on the relatively warmer weather in October which likely affected consumption of utilities during the month. We have already seen the Industrial Production Index for October, and the weak reading on public utilities output during the month is a clear signal that the strong decline on services consumption, by $14.1 billion, could be partially explained by weather related issues. However, this may not be the only reason for the weakness in services consumption, so we may have to wait and see what happened in November.
Personal Consumption Slow Start to Q4
Most of the strength in personal consumption in the third quarter occurred in September, up 0.5 percent in real terms. The start to the last quarter of the year was not promising but we do not think this result will change expectations regarding PCE during the last quarter of the year.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.